Market update: euro jumps as US dollar pauses and Japanese yen sinks

EUR/USD macro view

The euro continues to gain ground going into the Thursday session after three days of rallying off the two-month low seen last Friday against the US dollar.

Against the Japanese yen, the euro traded at its highest level since 2008 overnight and the acute disparity in monetary policy appears to be playing out as the USD/JPY made a 10-month high on Tuesday with no sign of the Bank of Japan in currency markets at this stage.

ECB rates to remain high

At the recent Jackson Hole economic symposium, European Central Bank (ECB) President Christine Lagarde raised her concerns about inflation but was less prescriptive about the rate path. Nonetheless, she made it clear that rates will stay high for as long it takes to get inflation down.

Later today the market will get the latest euro-wide consumer price index (CPI) read with a Bloomberg survey of economists estimating the headline number to be 5.1% year-on-year against 5.3% prior. The core CPI forecast is looking at 5.3%, below the 5.5% previously. Yesterday saw Spanish and German CPI come in a touch higher than anticipated and a notable miss in expectations may lead to volatility in the euro.

EUR/USD technical analysis

The EUR/USD broke above a descending trend line overnight on the back of three days of solid gains so far this week. In so doing, it cleared 21- and 200-day simple moving averages (SMA) and a series of breakpoints. These indicators might now provide support with the 21-day SMA at 1.0904, the breakpoints in the 1.0830 – 1.0835 area and the 200-day SMA currently at 1.0814.

Support could also be near the 78.6% Fibonacci Retracement level at 1.0770. This level held last week and saw a bounce after it was tested. If it were to rally, nearby resistance could be at the 55-day SMA near 1.0970. Potential resistance might also be offered in the 1.1065 – 1.1095 area where several historical breakpoints reside along with a recent high and just ahead of the psychological level at 1.1100.

Further up, resistance could be at the breakpoint from the March 2022 high at 1.1185 or the recent peak at 1.1275, which coincides with two historical breakpoints. Above those levels, resistance might be at the Fibonacci Extension of the move from 1.1095 to 1.0635 at 1.1380. Just above there are some more breakpoints in the 1.1385 – 95 area.

EUR/USD daily chart

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